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Scarcity

The concept of scarcity is always central to any discussion of economics. The definition of scarcity is pretty much the same in every textbook or on a web site: “The basic economic problem that arises because people have unlimited wants but resources are limited.” This is fine for a start, but it is rarely mentioned that scarcity is often relative. That is, resources are scarce until we find a way to get more of the the resource or more out of the resource.

Thomas Malthus is often cited regarding food production. The doomsayers who cite him both misunderstand his work (see “Malthus Reconsidered” by Ross B. Emmet) and fail to acknowledge that technology has made it possible to feed the world even with fewer people working in and less land devoted to agriculture.

Peak oil has been predicted numerous times, but new deposits are continually being discovered. The president has repeatedly stated that “the US has only 2% of the world’s petroleum reserves.” But that is just wrong. The government defines what “reserves” are, and the definition excludes most of our petroleum resources. Indeed the US has more petroleum, and more of all fossil fuels, than any other country. Even when these fuels get scarce for real, the market will have moved on. After all, we didn’t move on from the stone age because we ran out of stones. See the works of Julian Simon to get a better take on resources.

That is the “land” portion of the resource mix. As for labor, capital, and entrepreneurship, there is plenty of each of those things but they are hindered by restrictions set in place by governments to “protect” domestic industries and labor forces, transfer wealth, or put up barriers to entry (such as educational and/or licensing requirements) to protect existing businesses. With fewer regulations, lower taxes, and freer trade, these resources could be allocated as needed.

So, the bottom line is that while scarcity exists, it is relative to technology, innovation, and regulation.